Previous columns discussed a top-down approach for developing key performance indicators (KPIs) that leveraged the "alignment pyramid" to translate mission/vision into strategies, objectives, critical success factors and finally KPIs. That approach results in identifying those "vital few" KPIs that reflect a comprehensive business perspective and ensure that all employees are operating from the same enterprise scorecard. However, in today's realistic, dynamic and competitive environment, senior management often mandates that KPIs be developed "yesterday" by leveraging existing metrics shipped with the performance management, BI and ERP dashboard/application packages. The challenge is considerable because most of the applications ship with 1,000+ metrics. Over the next several months, we will explore several Six Sigma techniques - affinity analysis, correlation analysis and root cause analysis - that can assist us in winnowing out KPI metrics from the "plain vanilla" metrics.
Although business users may be ecstatic that they are receiving tons of metrics "right out of the box," many of the metrics either measure similar process activities or have comparable effects on the organization's critical success factors. The Six Sigma methodology of affinity analysis provides an effective technique for eliminating metric chaos and converting the myriad metrics into a focused group of KPI metrics. This technique allows disperse metrics to be clustered into naturally related and meaningful categories that reflect consistent process dimensions. Affinity analysis includes the following activities:
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